Chapter 12 12 1 Learning Objectives Describe the basic business activities and related information processing operations performed in the revenue cycle Discuss the key decisions that need to be made in the revenue cycle and identify the information needed to make those decisions ID: 242206
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The Revenue Cycle: Sales to Cash Collections
Chapter 12
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Learning Objectives
Describe the basic business activities and related information processing operations performed in the revenue cycle.
Discuss the key decisions that need to be made in the revenue cycle, and identify the information needed to make those decisions.
Identify major threats in the revenue cycle, and evaluate the adequacy of various control procedures for dealing with those threats.
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Basic Revenue Cycle Activities
Sales order entryShipping
Billing
Cash Collections
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Sales Order Entry Processing Steps
Take the customer order
Source document: sales order
Approve customer credit
Check inventory availabilityRespond to customer inquiries
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Sales Order Entry Processing
Threats
Controls
Incomplete/inaccurate orders
Invalid orders
Uncollectible accounts
Stockouts and excess inventory
Loss of customers
1 a. Data entry edit controls
b. Restrict access to master data to
maintain accuracy
2 a. Signature to authorize sale
3 a. Credit limits checked and if sale exceeds
limit, specific authorization needed
4 a. Perpetual inventory system
b. RFID or bar code technology
c. Physical inventory counts
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Shipping Process
Pick and pack the orderSource documents: picking ticket
Ship the order
Source documents: Packing slip, Bill of lading
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Shipping Process
Threats
Controls
Picking wrong item or quantity to ship
Theft
Fail to ship the goods
Ship to wrong address
1 a. Bar code technology
b. Reconcile picking list to sales order
2 a. Restrict physical access to inventory
b. Document inventory transfers
c. Physical counts of inventory and
reconcile to quantities recorded
3 a. Reconcile shipping documents to sales
orders, picking lists, and packing slips
4 a. Data entry edit controls
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Billing Process
Invoicing the customer
Source document: sales invoice
Updating accounts receivable
Source document: credit memo and monthly statements
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Billing Process
Threats
Controls
Failure to bill customer
Billing errors
Posting errors in accounts receivable
Inaccurate or invalid credit memos
1 a. Reconcile invoices with sales orders and
shipping documents
b. Separate shipping and billing functions
2 a. Data entry edit controls
b. Configure system for automatically
enter price data
3 a. Reconcile subsidiary accounts receivable
balance to the amount for accounts
receivable in the general ledger
4 a. Segregation of authorization and
recording function for credit memos
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Cash Collection Process
Process customer payment and update their account balance
Remittance
Deposit payments to the bank
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Cash Collection Process
Threats
Control
Theft of cash
Cashflow problems
1 a. Proper segregation of cash handling and
posting to customer accounts, authorize
credit memos, or reconcile bank account
b. Use lockbox
c. Deposit all cash receipts daily
2 a. Lockbox
b. Discounts for early payment
c. Cash flow budgeting
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Key Terms
Revenue cycle
Sales order
Electronic data interchange (EDI)
Credit limitAccounts receivable aging reportBack orderPicking ticket
Customer relationship management systems (CRM)
Packing slip
Bill of lading
Sales invoice
Open-invoice method
Remittance advice
Balance-forward method
Monthly statement
Cycle billing
Credit memo
Remittance listLockboxElectronic lockboxElectronic funds transfer (EFT)Financial electronic data interchange (FEDI)Universal payment identification code (UPIC)
Cash flow budget12-12